| Felix Stalder on Tue, 4 Aug 1998 14:12:56 +0200 (MET DST) |
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| <nettime> Rishab Ayer Ghosh: Cooking pot markets 1/2 |
[This is one of the best articles on the Internet gift economy and how it
relates to the money economy I've read in a long time. A bit long but a
very well written. The basic idea is the separation between what he calls
"idea" (the informational good or service, e.g. your post on nettime) and
what he calls "reputation" (the increased rank in the attention economy).
And since the attention economy is not only a force on-line, this is what
connects the gift and monetary economy. Simple but precise. It originally
appeared on First Monday [http://www.firstmonday.dk]. Pit, tireless hunter
and gatherer, fund it. Felix]
http://www.beje.decon.ufpe.br
[published with permission]
Recife, July 29th, 1998
Cooking pot markets: an economic
model for the trade in free goods and
services on the Internet
Copyright (C)1998 Rishab Aiyer Ghosh, all rights reserved.
Abstract:
It has long been assumed that there is something beyond
economics involved in the proliferation of free goods and
services on the Internet. Although Netscape's recent move to
give away the source code for its browser shows that the
corporate world now believes that it is possible to make money
with free software - previously eyed with cautious pessimism -
money is not the prime motivator of most producers of the
Internet's free goods, and neither is altruism. Efforts and
rewards may be valued in intangibles, but, as this paper
argues, there is a very tangible market dynamics to the free
economy of the Internet, and rational economic decisions are at
work. This is the "cooking-pot" market: an implicit barter
economy with asymmetric transactions.
Contents
What is value, or: Is the Internet really an economy?
The Economics of Gossip
Something for Nothing?
Two Sides to a Trade
Can You Eat Goodwill?
Is reputation a Convertible Currency?
Cooking-Pot Markets
A Calculus of Reputation
Conclusion
What is value, or: Is the Internet really
an economy?
This is perhaps the wrong question - akin to asking whether
direct-sales, or academic research is an economy. There is
much of value to be found on the Internet, much production and
consumption of goods and services. This is hardly surprising,
given that the Net has attracted 60 million people and is growing
in population at more than 100% annually. Many of the things
found on the Net, though, can be found off it - free software such
as Linux [1a] is distributed on CD-ROMs (for which you pay), not
just on Internet FTP sites. The Net is not another planet, the
people populating it are part of some "real world" society too,
trading, producing and consuming things off-line.
Although the word "virtual", like "cyber", has come to be
associated with everything on-line, the act of creating products -
such as home pages and notes published in discussion groups -
is as real on the Net as it is in a factory or newspaper office. The
"virtual" trade in knowledge products on-line, their "virtual"
consumption and production by millions of people, are very real
indeed, and affect the world outside the Net if only because its
own population forms an increasing (if still small) part of that
world's.
This makes it all the more important to take note of differences
between the part of the world's economy that is on the Net, and
the rest. Millions of people have been interacting and
participating in what they clearly value, using an economic logic
different from what they might normally use in off- line lives. So
there must be a definite possibility of the on-line economic logic
spreading beyond the confines of the Net - it's the same people
in both worlds, after all. There is no question that there are
differences between the economic logic - the application of basic
economic principles - on and off the Net.
To begin with, much of the economic activity on the Net involves
value but no money. Until a few years ago, there was almost no
commercial activity on the Internet. As commerce discovered the
Net it was natural for the Net to become commercial - which
makes the incredibly vast amount of resources still available free
remarkable. The free resources of the Net greatly outweigh all
commercial resources, especially if one counts only purely
on-line transactions (e.g. a bookseller like Amazon [1] makes
money selling books, which requires the physical transportation
of goods). It is quite hard to put a price on the value of the
Internet's free resources, at least in part because they exist
because they don't have prices attached. They exist in a market
of implicit transactions. [2]
The economics of gossip
I prefer arguing with extreme cases, so I won't start with the
obvious worth of free operating systems (Linux [3]) or Web
server software (Apache [4]). Newsgroup discussions are a less
obvious case, so I'll begin there.
If you are a heavy user of the Net, you might wonder how all
your little posts to discussion groups - say, rec.pets.cats - could
possibly be called economic transactions. But they are.
The Internet has, of course, changed enormously in the past
couple of years, indeed it changes all the time as its population
keeps doubling [5]. Many early users of the Net complain about
recent users - pejoratively calling them "newbies" - and the "junk"
they post. Although posts were more relevant and better written,
on average, before the Net became headline news, few were
likely to be accepted for publication in the average newspaper,
leave alone an academic journal. But I, like most people, found
many of these the implicit tag of "intra-office industry gossip
distributor" or "junior colleague advisor". But on the Net these
implicit transactions stand out in stark relief, suggesting even
more strongly that in a knowledge economy, every exchange of
knowledge in any form is an act of trade [6].
Every snippet posted to a discussion group, every little Web
page, every skim through a FAQ list and every snoop into an
on-line chat session is an act of production or consumption, often
both. There is no specific economic inherent value in a product.
Value lies in the willingness of people to consume a good, and
this potentially exists in anything that people can produce and
pass on.
Having settled that bad writing and even junk mail is a part,
however reprehensible, of the Internet's economy, let us proceed
to Linux. After all software, in particular large operating-system
software occupying up to six CD-ROMs when distributed off-line,
is undeniably an economic good [7]. And Linux with its loosely
organised community of developer-users, and its no-charge
policy, undeniably has an economic logic that seems, at first,
new.
Something for nothing?
Linus Torvalds did not release Linux source code free of charge
to the world as a lark, or because he was naive, but because it
was a "natural decision within the community that [he] felt [he]
wanted to be a part of" [8] Any economic logic of this community
- the Internet - has to be found somewhere in that "natural
decision". It is found in whatever it was that motivated Torvalds,
like so many others on the Net, to act as he did and produce
without direct monetary payment.
Of course, it is the motivation behind people's patterns of
consumption and, what is more relevant in the case of Linux,
production that forms the marrow of economics. Such motivation
is usually expressed in terms of curves of supply and demand,
measured by costs and prices in dollars and cents. Figuring out
what motivates, leave alone measuring it, is much tougher when
price tags don't exist. It is simpler to just assume that motivations
only exist when prices are attached, and not attempt to find
economic reason in actions motivated by things other than
money; simpler, therefore, just to assume as we often do that
the Internet has no economic logic at all.
This is wrong. The best portions of our lives usually do come
without price tags on them; that they're the best parts imply that
they have value to us, even if they don't cost money. The
pricelessness here doesn't matter much, not unless you're trying
to build an economic model for love, friendship and fresh air. But
you don't need to be an economist to know that all of these
things do involve motives, and perhaps also the matching of
(ordinal) demand and supply, even if demand curves are not
easily measured without price tags. Economics may not often
need to be used in an environment where valuables are free, but
that doesn't necessarily mean it can't be so used. And any
economic logic of the Internet has to have come to terms with
the difficulty of measuring such value.
Being on the Internet is not quite like being in love (though some
would argue about that) - but it brings with it the same sheen of
pricelessness. On the Internet, through much of its past, the bulk
of its present and the best of its foreseeable future, prices often
don't matter at all. People don't seem to want to pay - or charge
- for the most popular goods and services that breed on the
Internet. Not only is information usually free on the Net, it even
wants to be free, so they say [9].
But "free" is the wrong word: like love, information, however free
in terms of hard cash, is extremely valuable. So it makes sense
to assume that the 3 million people on the Internet who publish
matters of their interest on their home pages on the Web, and
the several million who contribute to communities in the form of
newsgroups and mailing-lists, and of course anyone who every
writes free software, believe they're getting something out of it
for themselves. They are clearly not getting cash; their
"payment" might be the contributions from others that balance
their own work, or something as intangible as the satisfaction of
having their words read by millions around the world.
While writing my weekly newspaper column on the information
society [10], I was distributing an e-mail version free of charge
on the Internet. A subscription to the e-mail column was available
to anyone who asked, and a number of rather well known people
began to receive the column each week. My readers often
responded with useful comments; I often wondered whether
people would pay for a readership like this. Many readers add to
your reputation, they make good contacts, helping you out in
various ways. Simply by reading what you write, they add value
to it - an endorsement, of sorts. So who should pay whom - the
reader for the work written, or the writer for the work read? [11]
The notion that attention has value is not new – and has been
formally analysed in the advertising industry for decades. In the
context of information and the Internet, the "attention economy"
has been described in recent papers [11a]. It would be facile to
suggest that attention necessarily has innate value of its own. In
some situations, being read by certain people may well have
value in itself – assuming the attention of such people is a rare
commodity with respect to what you write. But more often than
not – especially when it is the attention of a large distributed
audience in question – attention is a proxy for further value. This
may appear in the form of useful comments (or bug reports from
Linux users), assistance and contacts – or simply an enhanced
reputation that translates into better access to things of value at
a later point [see section "Is reputation a Convertible
Currency?"].
Even those who have never studied economics have an idea of
its basic principles: that prices rise with scarcity and fall in a glut,
that they are settled when what consumers will pay matches
what producers can charge. These principles obviously work, as
can be seen in day-to-day life. But that's the "real world" of
things you can drop on your toe. Will they work in a knowledge
economy? After all, this is where you frequently don't really know
what the "thing" is that you're buying or selling, or clearly when it
is that you're doing it, or, as in the case of my column, even
whether you're buying - or selling. Contrary to what many
doomsayers and hype-mongers suggest, it always seemed to
me that the basic principles of economics would work in an
economy of knowledge, information and expertise. They are,
after all, not only logical on the surface but also practically
proven over centuries - a powerful combination. Even if the
Internet appeared to behave strangely in how it handled value,
there was no reason to believe that, if it had an economic model
of its own, this would contradict the economic principles that
have generally worked.
However, if Paul Samuelson's textbook definition of economics
as the "study of how societies use scarce resources to produce
valuable commodities and distribute them among different
people" [12] remains as valid now as ever, almost all the terms in
there need re-examination. This is because of the same peculiar
economic behaviour of the Net that suggests it has developed its
own model, the economic model of the information age.
The Internet looks like an infant microcosm of the wider tions,
some 3 million copies every day across India. The whole
operation, particularly the co-ordination of advertising and
editorial, depends on RespNet. This internal network won the
Times a listing in ComputerWorld magazine's selection of the
world's best corporate users of information technology. RespNet
runs on Linux, and other similar free software got off the Net.
Raj Mathur, who set up Linux on RespNet, agrees with Torvalds
when the latter says, "people who are entirely willing to pay for
the product and support find that the Linux way of doing things is
often superior to 'real' commercial support." This is thanks to the
large community of other developers and users who share
problems and solutions, and provide constant, sometimes daily
improvements to the system. The developer-users (the Linux
incarnation of Toffler's producer-consumers, or prosumers)
naturally include operators of networks similar to RespNet. So
many of them can provide separately assistance that might not
be available if they were all working together in a software
company - as Linux Inc - where they would be produces of the
software but not consumers. This shifting base of tens of
thousands of developers-users worldwide working on Linux
means that the Times of India would have a tough time figuring
out whom to pay, if it wanted to, so it's just as well that the
support from these developers is free.
The fact that on the Internet people go looking for other people,
and Linux developers look for others like them, is just one
instance of the immediacy of much of the trade that takes place
on the Net. When you post your message to rec.pets.cats, or
create a home page - whether personal or full of your hobbies
and work - you are continuously involved in trade. Other
cat-lovers trade your message with theirs, visitors to your
home-page trade your content with their responses, or perhaps
the satisfaction of knowing that you're popular enough to get a
few thousand people discovering you each week. Even when you
don't charge for what you create, you're selling it, because
you're using your work to buy the work of others - in a discussion
group - or to buy the satisfaction of popularity - through your
Web site.
What is most important about this immediacy of the implicit
trades that go on all the time on the Net is its impact on notions
of value. Unlike the "real world", where things tend to have a
value, as expressed in a price-tag, that is sluggish in response to
change and relatively static across its individual consumers, on
the Net everything is under constant revaluation. Without the
intermediary of money, there are always two sides to every
transaction, every transaction is potentially unique, rather than
being based on a value derived through numerous similar trades
between others - i.e. the price-tag.
Continuing to alternate between examples from the worlds of
free software and USENET - to reiterate their equivalence in
economic terms - we can see the two-sided nature of trade in
this hypothetical example about cats. You may value the
participants in rec.pets.cats enough to post a long note on the
nomadic habits of your tom. In a different context - when the
same participants are quarrelling over the relative abilities of
breeds to catch mice - you may not find it worthwhile
contributing, because the topic bores you. And you may be far
less generous in your contributions to rec.pets.dogs. You value
the discussion on dogs, and catching mice, much less than a
discussion on tomcats, so you're not willing to make a
contribution. This would be "selling" your writing cheap; but when
you get feedback on tomcats in exchange for your post, it's the
right price.
This example may seem somewhat contrived, but only because
decisions on when and where to post a message or participate in
on-line discussions are taken all the time, so often that they're
barely noticed as actual decisions. In a knowledge economy,
however, the decision to write and freely distribute your note on
cats rather than dogs is no less an economic one than is the
decision to order Chinese take-out instead of pizza in the "real
world". Both are a question of resources allocation - your time
and effort in one case, your money (which actually represents
your time and effort) in another.
Unlike noodles and bread, readers on Internet newsgroups don't
come with price-tags pinned on, so common-place decisions
involving your on-line acts of production require that you figure
out the relative values of what you get and what you give, all the
time. Others are figuring out the worth of your contribution all the
time, too. Life on the Internet is like a perpetual auction with
ideas instead of money.
That note on your tomcat probably does not deserve the glorious
title of idea; certainly the warm feeling that you got in exchange
for posting it - when people responded positively and flocked to
your homepage to see pictures of your cat - couldn't possibly be
classed with "real ideas" (such as the one to black out the Web
in protest against the CDA [14]). Still, for the sake of
convenience the subjects of trade on the Net can be categorised
as idea (goods and services) and reputation (which when
enhanced causes all those warm, satisfied feelings, and more
tangible benefits too).
Ideas are sold for other ideas or an enhanced reputation;
reputations are enhanced among buyers of ideas, and
reputations are themselves bought and sold all the time for other
reputations, as we shall see later. The basic difference is that
reputation (or attention) is, like money, a proxy. It is not
produced or consumed in itself, but is a by-product of underlying
production of actual goods ("ideas" in our binary terminology).
Two sides to a trade
Unlike the markets of the "real world", where trade is
denominated in some form of money, on the Net every trade of
ideas and reputations is a direct, equal exchange, in forms
derivative of barter. This means that not only are there two sides
to every trade as far as the transaction of exchanging one thing
for another goes - which also applies to trades involving money -
there are also two points of view in any exchange, two
conceptions of where the value lies. (In a monetary transaction,
by definition, both parties see the value as fixed by the price.)
As the poster of notes on tomcats, the value of your posting
something is in throwing your note into the cooking-pot of
participatory discussion that is rec.pets.cats and seeing what
comes out. As the author of a page on cats, what you value in
exchange for your words and photographs is the visits and
comments of others. On the other hand, as a participant on
rec.pets.cats I value your post for its humour and what it tells me
to expect when my kitten grows up; as a visitor to your Web
page I learn about cats and enjoy pretty pictures.
When I buy your book about cats, it's clear that I am the
consumer, you the producer. On the Net, this clear
black-and-white distinction disappears; any exchange can be
seen as two simultaneous transactions, with interchanging roles
for producer and consumer. In one transaction, you are buying
feedback to your ideas about cats; in the other, I am buying
those ideas. In the "real world" this would happen in a very
roundabout manner, through at least two exchanges: in one, I
pay for your book in cash; in the next, you send me a cheque for
my response. This does not happen very often! (The exception is
in the academic world, where neither of us would get money
from the Journal of Cat Studies for our contributions; instead our
employers would pay us to think about cats.)
As soon as you see that every message posted and every Web
site visited is an act of trade - as is the reading or publishing of a
paper in an academic journal - any pretence at an inherent value
of economic goods through a price-tag is lost.
In a barter exchange the value of nothing is absolute. Both
parties to a barter have to provide something of value to the
other; this something is not a universally or even widely accepted
intermediary such as money. There can be no formal price-tags,
as an evaluation must take place on the spot at the time of
exchange. When you barter you are, in general, not likely to
exchange your produce for another's in order to make a further
exchange with that. Unlike the money you receive when you sell
something - which you value only in its ability to be exchanged for
yet another thing - in a barter transaction you normally yourself
use, and obviously value, what you receive.
When the contribution of each side to a barter is used directly by
the other, it further blurs the distinction between buyer and seller.
In the "real world" barter did not, of course, take place between
buyer and seller but between two producer-consumers in one
transaction. When I trade my grain for your chicken, there's no
buyer or seller, although one of us may be hungrier than or have
different tastes from the other. On the Internet, say in the Linux
world, where it may seem at first that there's a clear buyer (the
Times of India) and an equally clear, if aggregate seller (the
Linux developer community) there is, in fact, little such distinction.
Just as the existence of the thousands of independent Linux
developers are valuable to the newspaper because they are also
users of the product - and may face similar problems - other
Linux developers welcome the Times of India because how it
faces its problems could help them as Linux users. As Torvalds
says, " [t]here are lots of advantages in a free system, the
obvious one being that it allows more developers to work on
[Linux], and extend [Linux]." However, "even more important" is
that making Linux free brought "in one fell swoop ... a lot of
people who used it" - not just reporting problems, but playing a
crucial role in the further development of the system. Torvalds
notes that a single person or organisation "doesn't even think of
all the uses a large user community would have for a
general-purpose system" - so the large user base of Linux was
"actually ... a larger bonus than the developer base."
Of course Linux is far from being the only software product that
blurs the producer-consumer divide. Much software - even the
kind sold by companies for money - is now highly dependent on
user feedback. This feedback is not just to give the producer
information on market needs - which is not normally thought of as
something consumers can barter with - but for testing and
sometimes fixing technical problems with programs. Netscape
has had a public campaign to encourage users to find bugs in
their code - which were traditionally, and expectedly, scanned for
and fixed within software companies. So "real world" companies
also often buy from their customers even as they sell.
(When it starts giving its source code away free, Netscape will
encourage users to fix bugs too, and in general to become
developers. It will become a company grown even closer buying
from its customers than most.)
Can you eat goodwill?
Perhaps you will agree that when you next post a note on cats,
you're not giving away something for nothing. But what you get in
return is often pretty intangible stuff - satisfaction, participation in
discussion and even answers to cat-related questions are all
very well, and may be fair exchange for your own little notes, but
don't seem substantial enough to make much of an economy. As
for Linux - it's fine to talk about a large base of user-developers
all helping one another, but what has all this brought Linus
Torvalds? Although Linux did get vastly improved by the
continuing efforts of others, none of this would have happened
without Torvalds's original version, released free. Assuming that
he's not interested in Linux as a hobby, he's got to make a living
somehow. Doesn't he seem to have just thrown away a great
product for nothing?
First, let's see what intangible "payment" Linux brought. In the
circles that might matter to Torvalds's career, he's a sort of god.
Most of the technology of the Internet, including tools such as
Linux, HTML (the language of the Web) and the Web server
Apache (with 45% of the total market, enough for Bill Gates to
call it Microsoft's "biggest competitor" [15]) have been developed
and distributed without payment. As government and academic
participation declined as a proportion of the total Internet
developer community, most recent "free" technology has not
been subsidised, either. The main thing people like Torvalds get
in exchange for their work is an enhanced reputation. So there
are, in fact, lots of Net gods.
Net gods get hungry, though, and reputation doesn't buy pizzas.
So what does Torvalds do? As it turns out, he was still in the
University of Helsinki (in October 1996, when I first interviewed
him; he's now with an American company where "it's actually in
[his] contract that [to do] Linux part-time"). "Doing Linux hasn't
officially been part of my job description, but that's what I've
been doing," he says. His reputation helped - as Torvalds says,
"in a sense I do get my pizzas paid for by Linux indirectly."
Was this an academic sense, perhaps? Is Linux, then, just
another of those apparently free things that has actually been
paid for by an academic institution, or by a government? Not
quite. Torvalds remained in the University out of choice, not
necessity. Linux has paid back, because the reputation it's
earned him is a convertible commodity. "Yes, you can trade in
your reputation for money," says Torvalds, " [so] I don't exactly
expect to go hungry if I decide to leave the University. 'Resume:
Linux' looks pretty good in many places."
-----end part one ------
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